Letter of credit settlement
A cross-border trade payment under a documentary letter of credit: the issuing bank promises to pay against compliant documents, the presentation is examined, and on compliance the payment leg settles between the banks and the exporter is credited.
Your notes
The importer asks Bank Alfa to issue a credit
Demo Trading Ltd (importer) → Bank Alfa (issuing bank) · LC application
Demo Trading applies to its bank to open a letter of credit in favour of the exporter, setting out the amount, the documents required, and the shipment terms. The bank is being asked to lend its promise, so it assesses the importer's credit first.
Step 1 of 9: The importer asks Bank Alfa to issue a credit
- 06ProcessingBank Alfa examines the documentsBank Alfa (issuing bank)
- 08SettlementThe payment leg settles between the banksBank Alfa (issuing bank) → Meridian Bank (advising / nominated)
- 09PostingMeridian credits the exporterMeridian Bank (advising / nominated)
Full step-by-step text (works without JavaScript)
- 06ProcessingBank Alfa examines the documentsBank Alfa (issuing bank)
Bank Alfa examines the presentation against the credit's terms. Payment is triggered only if the documents comply on their face — a wrong date or a missing endorsement can break it.
Screening checkpoint: Trade-finance screening — Parties, goods description, and banks in the chain are screened; a hit can hold settlement regardless of documentary compliance.
- 08SettlementThe payment leg settles between the banksBank Alfa (issuing bank) → Meridian Bank (advising / nominated)
The payment obligation is discharged across the banks' correspondent accounts — Bank Alfa's nostro debited, Meridian's account credited — the same way any cross-border interbank obligation settles. The documentary event triggered it; correspondent banking settles it.
- DR Bank Alfa nostro serving Meridian — USD 480,000.00
- CR Meridian settlement account — USD 480,000.00
- 09PostingMeridian credits the exporterMeridian Bank (advising / nominated)
Meridian credits Example Supplies. The trade payment is complete end to end: importer's bank promised, documents examined, banks settled, exporter paid — and the importer takes up the documents to collect the goods.
- CR Exporter's account at Meridian — USD 480,000.00
What this simplifies: One letter of credit, one presentation, paid at sight. Real documentary trade can add a confirming bank, amendments, partial and deferred presentations, and a longer examination cycle; the interbank payment may route through additional correspondents not shown here.
Sources for this flow2
- Scheme-specific rule
Swift Standards MT (annual standards releases) ↗ — Swift
Full field-level specifications live in the Swift Knowledge Centre User Handbook behind a swift.com login. Coexistence for in-scope FI-to-FI payment instructions ended on 22 November 2025, but treatment differs by MT: some instructions are NAKed and selected messages can enter temporary, chargeable contingency conversion. Reporting, initiation, investigations and correspondence follow separate roadmaps.
- Simplified educational illustration
Payments Signal editorial teaching models — Payments Signal
What this simplifies: Fictional parties and one straightforward credit. A confirming bank, negotiation and deferred-payment credits, partial shipments, amendments (MT707), and the full documentary examination timetable are omitted; the correspondent settlement is shown as a single leg.
Used wherever diagrams, scenarios, figures, or example values are didactic constructions rather than sourced facts; every such use carries a simplifications disclosure. All people, companies, banks, and list entries in examples are fictional.